CONSUMER STAPLES: Scandinavian Tobacco; FY24 (to dec) Results
(STGDC; Baa3/NR; Stable)
4Q is firm on margins but volume trends remain lacklustre (in core Machine rolled, Europe was down -2.8% in 4Q vs. FY -3.5%). The 29s were a value view in primary and have performed (-90bps). Excess carry is still on offer with protection of a 1.25% step up/down but we would caution investors to keep in mind the scale of this co (€1b in sales vs. majors doing €10-30b) and cigar-centred focus when scaling risk. Re. the step we don't see that being unlocked before the September interest payment date; Moody's has been extremely lenient on it this year (including in its remarks last month). FY guidance is a tad lacklustre and left wide in range as it flags high uncertainty on how market trends evolve. We do not expect supply.
- 4Q organic sales -1%, including acquisition onboarded revenue +8%
- flags discontinuing of certain NGP products but also decrease in US handmade cigars (the weak segment). Handmade as a whole only makes up 1/3 of group which was down -1%.
- Growth in machine-rolled (1/2 of group) of +2% and small exposure through nicotine pouch brand XQS continued growing double digits (it is not a positive EBITDA contributor).
- 4Q adj. EBITDA was +15% on a 24.3% margin (+160bps)
- says on favourable mix
- 4Q FCF was also firm at DKK 604m (up from 452m)
- FY sales at DKK9.2b/~€1.2b, organic +0.4%, net +5.5%
- EBITDA margin at 22.6% (-150bps)
- FCF before acquisitions of DKK930m (down from 1.05b)
- A +1% increase to the dividend to 8.5/share (DKK731m) and another 765m in buybacks (total 1.5b in equity pay-outs)
- Moody's has cleared this amount but still sizeable given FCF after acquisitions this year was only 355m
- Net debt at 5.4b (€727m) leaving it g/n 2.7/2.6x
- down on net from 2.9x last quarter but up from 1.9x last year on acquisition
- Excluding pre-funded €Nov-25s (Moody's looks at it this way) it would be 2.3/2.2x.
- Target is net <2.5x and Moody's only needed it below this in coming months (close enough to)
FY25 guidance:
- Sales in DKK9.2-9.7b range (unch to +5.4%)
- adj. EBITDA margin 20-23% (-260bps to +40bps)
- FCF before acquisitions of DKK0.8-1.1b (~unch)